Review: The Hard Thing About Hard Things; Building A Business When There Are No Easy Answers by Ben Horowitz
The Hard Thing About Hard Things is quite possibly the greatest book ever written about running a business in a high stakes, hyper-competitive environment.
Here’s what a CEO in a less extreme world than Silicon Valley can (and can’t) learn from Ben Horowitz…
Review by Gareth Williams
As far as I know, The Hard Thing About Hard Things is the greatest book written about running a business in a dynamic, high stakes, hyper-competitive environment. It’s not a memoir. It’s not a set of self-help formulas. Rather, it’s an account of some extremely testing experiences and outstanding successes that have then been refined into advice by a thoughtful intelligence. Ben Horowitz has been a very successful founder, CEO and investor. Along the way, he’s been on a roller-coaster with some impressive people. He is a great story-teller.
Many of the stories could only really happen somewhere like Silicon Valley. We’re in the territory of multi-million dollar valuations and grown-up capital markets from the go (board members providing pithy advice include Michael Ovitz, Hollywood super-agent; advisers include Goldman Sachs and Morgan Stanley; businesses can go from naff all to billions and back again in the space of months; companies are quoted on the NASDAQ).
It’s also worth pointing out that it’s very much focused on the B2B, client-driven, contracting model; there’s nothing specifically about consumers. Finally, he’s a big fan of rap and uses it epigraphically along with its insults, threats and aggression (I guess this is appropriate given it’s an art form that is very interested in competition, money and success). But, whatever, there’s plenty to learn, even for those with a more modest prospect than the sort of fame and fortune you can achieve at the top of tech.
Here are some notes sequenced with the book - some are standalone, others encourage further investigation:
‘It’s a good idea to ask, “What am I not doing?’ (he makes millions by pursuing a business development opportunity they hadn’t been rigorous enough to investigate).
Making a success of a start-up at some point involves an existential struggle - he provides good tips on how to survive.
‘Tell it like it is’ - especially when you’re laying people off. The chapter The RIght Way to Lay People Off is an invaluable practical guide.
Ditto, the next bit on firing senior executives.
‘...humans, particularly those that build things, only listen to leading indicators of good news’. This reminded me of the Feynam quote: ‘the first principle is that you must not fool yourself – and you are the easiest person to fool’.
‘All the mental energy you use to elaborate your misery would be far better used trying to find the one seemingly impossible way out of your current mess’ (I didn’t say this book doesn't have its dark moments).
‘Being a good company doesn’t matter when things go well, but it can be the difference between life and death when things go wrong. Things always go wrong. Being a good company is an end in itself’. This is said in justification of adhering to good management practice (e.g. sticking to the company timetable for one-on-ones).
‘Training is, quite simply, one of the highest leverage activities a manager can perform’ (he’s quoting Andy Grove of Intel).
‘It’s Hard to Bring Big Company Execs Into Little Companies’ is the title of a chapter that’s well worth reading. This is one of the commonest hiring mistakes made by ambitious small companies, in my experience.
‘Valuing lack of weakness rather than strength’, is a mistake when you’re making a functional hire. ‘‘The more experience you have, the more you realise that there is something seriously wrong with every employee in your company (including you).’
‘At a basic level, metrics are incentives’. Make sure the metrics you talk about are your real goals as otherwise you will distract the team. Numbers can blot out a vision you have for, say, the quality of a product or customer experience.
‘Every really good, really experienced CEO I know shares one important characteristic: They tend to opt for the hard answer to organisational issues’.
There’s an excellent short chapter on how to be good at HR: Management Quality Assurance.
‘...a company will be most successful when the senior managers optimise for the company’s success...as opposed to their own personal success…’
Culture is created through distinctive, emblematic, sometimes shocking everyday detail (I paraphrase).
‘Managing at scale is a learned skill rather than a natural ability’ and ‘it’s nearly impossible to make the judgement in advance’.
‘Perhaps the most important thing that I learned as an entrepreneur was to focus on what I needed to get right and stop worrying about all the things that I did wrong or might go wrong’.
‘The only thing that prepares you to run a company is running a company’.
‘Intellectually, it should be clear that it is easier for employees to go to one decision maker rather than two. It’s really not very complicated at all. Unfortunately, the clear and present social pressure often overwhelms the long term pressure of organising the company properly’
‘...when it comes to CEO succession, internal candidates dramatically outperform external candidates. The core reason is knowledge’.
‘...two core skills for running an organisation: First, knowing what to do. Second, getting the company to do what you know’. Horowitz uses this to create a CEO typology, of Ones and Twos. The following discussion is brilliantly clarifying: ‘...most companies are run by Ones and have a team of Twos’; ‘CEO transition is hard. If you bring people in from the outside, you lower your chances for success. If you promote from within you must deal with the One-Two phenomenon’.
What makes a CEO? (1) ‘...articulate a vision that’s interesting, dynamic, and compelling’ (2) ‘get really great people to work for her ... create an environment where the employees feel that the CEO cares more about the employees than she cares about herself’, (3) ‘ competence, pure and simple’.
‘So are great leaders born or made? (1) Vision: ‘anybody can improve on this area through focus and hard work; (2) Alignment of interests (i.e. to provide motivation): ‘Of the three, this one most fits the bill “born not made”; (3) Competence: ‘...can absolutely be learned’. I’m less sceptical that ‘alignment of interests’ as a means of motivation cannot be learnt: I suspect many politicians lead effectively despite this not coming instinctively to them. I’m more sceptical that competence at a really high level can be learnt - it requires judgement and that is an elusive faculty.
Wartime CEOs require a very different approach to the job than Peacetime CEOs.
Making the CEO: ‘Your goal should be for your feedback to open up rather than close down discussion ... the CEO constantly gives feedback ... get comfortable talking about what each other are doing wrong then it will be very easy to talk about what the company is doing wrong’.
How to evaluate a CEO: (1) ‘Does the CEO know what to do?’ Involves evaluating two facets: strategy (articulating the story) and decision making (courage allied with systematic acquisition of the right knowledge); (2) ‘Can the CEO get the company to do what she knows?’ Requires management capacity/talent allied to motivation, strong communication, lots of common knowledge and clear context; (3) ‘Did the CEO achieve the desired results against an appropriate set of objectives?’ Don’t rely too much on this one: results against known objectives are a lagging indicator and we need to focus on the future.
Accountability vs creativity in a business can be a zero-sum game, i.e. failure is consequent on creativity and if you penalise the former you will kill the latter. The only way to avoid this bind is to reward/penalise on the basis of forensic situational knowledge.
‘...your loyalty must go to your employees - the people who report to your executives … You owe them a world-class management team. That’s the priority.’
There’s also a stellar story about hiring a head of sales when getting more sales was a life or death matter for his company (in Take Care of the People, the Products and the Profits - In That Order).
Most of this generally-applicable advice relates to people management, which is fair enough as that’s a major part of the job of running a company. However, there’s not as many broadly applicable lessons in here as I had supposed when deciding to write this review (this is after a second read). In fact, what’s striking to me now is how many of the stories underline Horowitz’s mastery of strategic thinking in a sphere he knows extremely well. You can’t learn this sort of mastery as a generic skill - you need grist for the mill.
But this, too, is a lesson: a lot of what you need to know in business is specific to a particular type of business. Whether you sell to consumers or clients, the nature of the competitive environment, the impact of new technology, what roles you need in your team, how to motivate the sort of people you employ, and more: these factors are organised in a constellation that’s unique to your business at any one time. To understand what the hell is going on and what you might do about it requires situational knowledge. And the depth of this required knowledge is probably a function of the complexity or newness of the sector. This might seem a truism. But do MBA courses really recognise its importance?
In any event, Horowitz’s field of operation is uniquely demanding. ‘As a technology startup, from the day you start until your last breath, you will be in a furious race against time. No technology startup has a long shelf life. Even the best ideas become terrible ideas after a certain age’.
The ultra-Darwinian environment skews his answers to a number of questions. For instance, when he asks ‘Should you sell your company?’, he argues you should do so if you answer ‘no’ to either: ‘(a) is this market really much bigger (by an order of magnitude) than has been exploited to date? and (b) are we going to be number one?’ Outcomes in technology are pretty binary. Getting the timing right on when you cash in your chips can decide whether you walk away from a company as hero or... something less. Of course, to a degree, this is true of all businesses, where the hard is just as hard if not quite as hair-raising.